Ask Question, Ask an Expert


Ask Basic Finance Expert

problem 1: Six years ago, you made a fully amortizing, thirty year, fixed rate mortgage for $350,000 at 4.5% and 80% LTV. Since then, the house has appreciated by a total of 20%. Assume you only ever made scheduled payments on the loan.

a) What was the value of your house 6 years ago when the mortgage was made?

b) What is your current equity? Your current LTV?

c) How much could you borrow today, if you wanted your new total loan-to-value to be 80%?

d) Suppose you want to borrow the amount in (c), on top of your current debt. Today, rates on 80% 24 year mortgages are 5.5%. What would have to the rate on a 24 year HEL for you to prefer keeping the old loan plus the HEL? Assume you will keep all mortgages for their full (remaining) term and only pay the scheduled amounts, and that there are no lender fees.

e) How does your answer in (d) change if the original loan had a 2% prepayment penalty?

problem 2: A property is available for sale that could normally be financed with a fully amortizing $80,000 loan at a 10% rate with monthly payments over a 25 year term.

a) What would be the monthly payments with “normal” financing?

b) The builder is offering the buyers a mortgage that would reduce the payments in (a) by 50% for the first year and by 25% in the second. After the second year, the mortgage reverts to the regular monthly payments for the remainder of the term. How much would the builder have to give the bank to buy down the payments as described?

c) Would you recommend the property be purchased if it was selling for $5,000 more than similar properties that do not have the buy-down available?

problem 3: An investor has owned a property for 15 years, the value of which is now $200,000. The balance on the original loan is $100,000 and the monthly payments are $1,100 with 15 years remaining. He would like to obtain $50,000 in additional financing. A new first mortgage for $150,000 can be obtained for at a 12.5% rate and a second mortgage for $50,000 at a 14% rate with a 15 year term. Alternatively, a wraparound loan for $150,000 can be obtained at 12% and for a 15 year term. All loans are fully amortizing and ignore taxes and fees.

a) Which alternative should the investor choose?

b) What is the wrap mortgagee’s return on investment?

problem 4: You always have had a very high FICO score. A bank has owned your fixed rate, fully amortizing 30 year loan for 10 years. The original principal was $300,000 with a note rate of 3.5%, and you only ever made scheduled payments. Current 20-year mortgages for prime borrowers are 6%. Ignoring prepayment effects, at what discount to face could the bank sell your mortgage for in the secondary market?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M92430

Have any Question? 

Related Questions in Basic Finance

Question again1 interest rates the cost of money

QUESTION AGAIN #1 Interest rates, the cost of money, influence most all factors related to personal and corporate capital budgeting. The more obvious personal information for the cost of money is the rates associated wit ...

A national survey of 40000 adults in the us in 1992 found

A national survey of 40,000 adults in the US in 1992 found that 26% of adults were current smokers. A similar survey of 37,000 adults in the US in 1966 found that 43% of adults were current smokers. Construct a 95% confi ...

1 what is the range and why is it not ideal as an index of

1. What is the range, and why is it not ideal as an index of variability? 2. Give a definition of variance, then explain how you would calculate it. 3. How does variance differ from the total sum of squares?

You have a 1100 balance on your 15 credit card you have

You have a $1,100 balance on your 15% credit card. You have lost your job and been unemployed for 6 months. You have been unable to make any payments on your balance. However, you received a tax refund and want to pay of ...

Why is a combination of torque and angle measurement or

Why is a combination of torque and angle measurement or control so popular in mass production operations? What is meant by window control? What is meant by yield control in mass production applications? Does tightening a ...

The spot rate for the danish krone is usd01500 and the

The spot rate for the Danish krone is USD0.1500 and the three-month forward rate is USD0.1505. Your company is prepared to speculate that the Danish krone will move to USD0.1650 by the end of three months. (a) Are the qu ...

Question 1 - planning and strategic inputbriefcompany x is

Question 1 - Planning and strategic input Brief: Company X is a department Store with 100outlets, selling a wide range of household and clothing products. Traditionally they have used Press advertising to drive awareness ...

1 currently you own 10 of the outstanding stock of abc

1. Currently, you own 10% of the outstanding stock of ABC Company. The company has decided to issue additional shares of stock and has given you the first option to purchase 10% of those additional shares. Which one of t ...

1 which type of error do researchers usually regard as more

1. Which type of error do researchers usually regard as more serious? Why? 2. Explain what it means if a researcher sets the alpha level for a statistical test at .05. 3. What does it mean if the difference between two m ...

Determine whether information has to be documentedimagine

Determine whether information has to be documented. Imagine that you're writing a case study report about the bookseller Barnes and Noble. Which of the following information has to be documented in a report? • Barnes and ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro